Feb 2 2010 10:04AM

Derivatives Scam Slides Into The Sunshine

In this report, we list a summary of events creating and causing our global economic problems in chronological order covering the last ten years. It is helpful to understand where we’ve been and where we are going for personal security and potential gains in trading and investing. Our Northern Advisor is one our most brilliant sources of information. He has provided things for me that in my view are priceless and without parallel. I have known him to be extraordinarily far-sighted and extremely accurate on his forecasts. His perspective is one that is truly unique.

“What is different about using AIG as the cover to move dirty funds is that  they were the conduit for stolen money going directly to Goldman Sachs (and indirectly to the other Boyz). Since AIG isn't an 'official' government agency, it would be hard to claim 'national security' to sidetrack an investigation. This money shuffle through AIG is the one weak link that might open a legal window into the greatest theft of all time.” - Northern Advisor

It appears the entire derivatives story once regarded as a conspiracy fairy tale is now on the table and it is very ugly. Here are the key points following the scam from beginning to end:

  1. We had a 70 year K-wave top in 2000 (1929-1999) with a crashing Nasdaq after a go-go tech rally followed by subsequent market failures.

  2. Greenspan would not endure a recession and responded by dropping interest rates to pathetic lows; for years.

  3. Congressional housing proponents, vote-grubbing boyz, wanted a chicken in every pot and a house for everyone, irregardless of their ability to make payments, real estate taxes, repairs, and take general good care of a home. Those giveaway loans were blatantly outrageous and reckless.

  4. Mortgage underwriting rules were thrown to the wind. Anyone with a job and a pulse could buy a house. Some without jobs were approved on no-doc loans. Some with names from graveyards (no pulse) were granted loan approvals given to application scammers and thieves.

  5. Global bankers were enabled to use relaxed Enron-like trading rules to write derivatives of all kinds. Rules were nearly meaningless as borrowers and lenders alike went nuts tossing billions.

  6. Housing boomed and derivatives of several kinds were sold with reckless abandon. Bankers made enormous fees. Risk was not considered whatsoever. Their motto was “Let ‘er’ rip.”

  7. Housing and other derivatives bubbles came to a stratospheric peak in 2005-2006 and blew-up. We did forecast the housing debacle when June, 2005 lumber futures went into the tank followed by crashing derivatives.

  8. Housing and derivative paper sank to very low values, or zero as lenders and borrowers imploded. The housing failure fallout could continue in most US regions for the next three to five years.

  9. Damages were so severe that if left to their own devices, many of the global banks would have failed taking the entire economic system into the dark ages of finance. Bear Stearns, Lehman, and Bank of America were selected as sacrificial lambs, as certain other banks seized the moment to defile and dispose of their competition. “Never let a good crisis go to waste.”

  10. USA and other nations’ central bankers pumped currencies and bonds to the moon. They were printed and originated with wild abandon to cover-up the mess and contain the damage. It continues today. Japan or China or both could crash first. Five Euroland nations are on the edge of collapse. The U.K. is basket case and more than one country in South America is caving into big trouble.

  11. In the USA, TARP money was stolen from taxpayers and funneled through conduit AIG to crooked, failed bankers to reliquify their balance sheets with free money. They are supposed to lend some out for growth but are holding it tight earning free interest from the government; taking no risks.

  12. In the next criminal act, Fannie and Freddie have been given a wide-open checkbook for the next three years. All the USA bad real estate paper will be funneled into these bankrupt entities and then they will be flushed and disbanded. These loans were not paid or legally bankrupted-discharged, but summarily, surruptitiously, hidden and dumped.

  13. Crooked bankers discovered they are “Too Big To Fail” and are doing it all over again with a tacit “no penalty” understanding. Estimated derivative balances today are $204 Trillion Dollars. No one will stop them until everything collapses in one final crashing swoon.

  14. The order of collapse could be moving from current deflation to inflation, hyperinflation, back to deflation and lastly, world war to escape the final disaster. War is always the final solution to divert the attention of Sheeple from their pathetic broken economic existence.

  15. Civil disorder appears this summer in several countries instigated by hungry, jobless people from all working classes. So far its been contained to car fires, vandalizism, protest marches and small riots. The deeper we go into Greater Depression II, the worse it gets expanding into stronger and more wide-spread violence.

  16. The larger questions become: What happens on the other side after the war? Who will lead the world? Will the US Dollar continue to be the world’s reserve currency? Will we attempt to return to the gold standard? Will those who were responsible for these disasters pay the price? If so how? Will they go to jail? Will they escape the wrath of the Sheeple? What will the economic world look like after the monster obligatory war? Who will control global energy? 

  17. The controller of global energy resources, we think could be either Russia or the USA-the ultimate winner. We would prefer to believe America will win and survive but we cannot know for sure. Congress and the current administration (along with some members of prior administrations) are all equally at fault. The Sheeple, The Herd, The Middle Class, and The Bubbas are gearing-up for a massive revolt. Who pays the price? Who escapes? How bad will it get? No one can say for sure but we live in interesting times in a world being changed for good.

On February 1, 2010, President Obama presented his fiscal year 2011 national budget. Since all the bad housing paper is being off-loaded into Fannie and Freddie, they were excluded from this new budget. Further, those two money-debt monsters have an open checkbook for the next three years to keep buying bad mortgages. The new budget is $3.8 Trillion US dollars and demands $1.9 Trillion in brand new taxes on the rich and on wealthy businesses.

We do not expect this budget to be approved as presented but there is no question taxes will rise for all Americans and all American businesses. This will further destroy any hopes of recovery. Larger corporations are moving overseas and will do so with an increased frenzy. Many of them have most of their assets out of the US already. It will be very easy to relocate the rest, fire American employees and move on to greener international pastures.

Individual wealthy Americans will do the same. Many of them have sold out and gone to foreign lands as they saw the hand writing on the wall. This atmosphere will inhibit formation of new businesses as the prospective owners when seeing these unrealistic obligations will elect to (1) Not open any new business. (2) Go into business overseas. (3) Reduce current profitable American businesses and lay-off employees. (4) Shut down their US businesses, take the cash from a potential sale and retire or move away.

When big manufacturing moved overseas, it gutted the Midwestern United States. This rustbelt region formerly composed of 85 million Americans is dying a slow death. Those that can are leaving for good. The City of Detroit once held nearly 2 million people. Today it is less than 900,000 and has 50% unemployment. Yet the Michigan governor thrashes around trying to encourage new companies to locate there. People are not so stupid as to go along. They are voting with there feet. I know; I was one of them. Michigan unemployment is officially in the teens. Reality says 25% of Michigan is out of work and its getting worse faster than ever. California, Nevada, Arizona, Florida, New York, New Jersey and Illinois are all in the soup.

Many still believe Asia is the future. We think it was for a few years but China, in our opinion, is on the verge of a fiscal meltdown. We are not alone in our thinking. Many top analysts see things they way we do. All economies when engaged in extremes eventually return to the norm. China is no different.

In our view, Canada has been the best choice of any western nation; even better than Germany, which has proven to be an economic powerhouse. Germans are stuck in the middle of a sinking ship called Euroland. On the other hand, Canada is rich is natural resources, and their bankers wisely stayed out of derivatives and related messes. With the exception of some problems in manufacturing, Canada is the future.

Our next window for buying precious metals shares could open this week as gold has begun a new rally along with several other commodities. We are watching to ensure this new rally is for real but have already been invested in gold, silver, and grain with futures spread positions for 2010.

Additionally, we buy and recommend the purchase of gold and silver coins for personal and retirement portfolios. Our standard recommendation is for an individual to use 10% of their investment cash for precious metals and not sell them whatsoever. This applies to the first $100,000 of any single account with further adjustments on a sliding scale for larger accounts.

Our current cycle for commodities and commodity related currencies has begun. While we hear objections to technical patterns for these current markets we would argue that now is the time to get busy and buy. Our record while not perfect has been quite correct on trend and that is the objective.

In the spring of 2009 we did forecast the gold price at $1250-1260 for the December, 2009 futures. We touched $1226. The interim move was substantial and profitable for those with positions including our own.


Be very careful as we move forward in time. Trading is going faster and more volatile with wider trading ranges in precious metals and other markets. Try to be in position ahead of time rather than locking yourself into trades at the very last minute. Futures traders should always use stops and shares traders as well. Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog.

Roger Wiegand
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com


Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information

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